Co-operatives, Mutuals and Friendly Societies Bill
Friday 24th March 2023
(1 year, 8 months ago)
Lords ChamberCo-operatives, Mutuals and Friendly Societies Act 2023 View all Co-operatives, Mutuals and Friendly Societies Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 30 November 2022 - (30 Nov 2022)
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I am delighted to present this Bill to your Lordships’ House today for its Second Reading. I thank all noble Lords who have signed up to speak and look forward to each of the contributions that will follow shortly.
I have been a supporter of co-operatives in all their forms for more than 40 years. I am one of a small group of Labour and Co-operative MPs and Peers sitting in Parliament. The Co-operative Party, of which I am a member, has since 1918 had an agreement with the Labour Party that it seeks representation on public bodies only jointly with it. The Co-operative Party today is proud to have 28 MPs, 16 Peers, 11 Members of the Scottish Parliament, 16 Members of the Senedd in Wales, five metro mayors and nearly 1,000 councillors elected in England, Scotland and Wales. I am a member of the Co-operative Group and, as detailed in my entry on the register, a director of the London Mutual Credit Union, one of the biggest credit unions in the United Kingdom. I first joined the old Royal Arsenal Co-operative Society 43 years ago—I know I do not look old enough—following a meeting with my noble friend Lady Thornton, who at that time was working for it; we have been friends ever since.
This is a small, two-clause Bill. It is another step along the road of reforming and developing the legislative framework to support the sector. I place on record my special thanks to the Member for Preston in the other place, Sir Mark Hendrick MP, for steering this Bill through the other place so skilfully, and also to Peter Hunt and Mark Willetts, the team at Mutuo, for the work they undertook in devising the Bill. I also thank officials at the Treasury for their work in getting us to the place today where the Government are happy to support the Bill. I am still struggling to get such a positive response to my other Private Member’s Bill on residential leasehold, but we struggle on with that one.
The Bill is all about protection. It is about creating the mechanism to enable mutual organisations to opt in to a restriction on the use of their assets. This is permissive, not mandatory. If a mutual organisation does not want to use the powers in the Bill, it does not have to. It allows the Treasury to make regulations that in turn will allow various mutuals, if they so wish, to opt in to a restriction on the use of their assets. Equally, those that do not elect to opt in are free to carry on as they do now. That is a very important point for the House to note, and one of the reasons why the Bill is structured the way it is. The Bill is necessary, as it enables a pathway to protect and preserve members’ accumulated assets from those who would like to mount a raid on them for profit and gain for themselves. In many cases, these assets are considerable and have been accumulated over many years and generations.
As part of our mixed economy, co-operatives, mutuals and friendly societies have their role to play, and the environment they operate in should be as supportive as possible, allowing them to remain true to their founding principles and flourish. This Bill will help them do that with the knowledge that there is a mechanism that they can take up to provide a layer of protection to maintain mutual capital for the purpose intended, if they themselves decide they need this protection.
There are important differences between companies and mutuals, which the Bill is trying to protect. Noble Lords will be aware that members of a company have the right to a share of the distributed profits, based on their shareholding, and to a share of the underlying value of the company. The more capital you own, the greater your share of the profits and the value of the company. Members of a mutual society, by contrast, generally have neither of those rights because, in mutuals, profits are generally not used as a mechanism for rewarding capital and members of a mutual do not have any expectation of or entitlement to a share in the increased value of the society.
As members of a mutual are not entitled to any share of its increased value, the amount by which the net asset value of a society exceeds the capital provided by members has no specific owner. It is in effect a legacy asset, held by the society for future generations, that enables it to provide for and invest in the future. It is a core part of a mutual’s identity. It represents the trading surplus accumulated by previous generations of members participating in their society’s business, in which they were always content to have no personal share. By implication, it is held for the benefit of future generations.
Seen through the lens of investor ownership, a capital surplus is a tempting asset for a windfall profit, which—if mutual members were replaced by investor shareholders —could be shared out among the shareholders. Capturing the asset is the usual incentive for demutualisation, which is when a capital surplus or legacy asset is divided up between the shareholders. When the mutual agreement between the former members, whereby they engaged with the society on the basis that they would not personally profit from its trade, is broken up, in short, any mutual purpose for a common good is replaced by a profit-driven purpose for private benefit.
The measures in place today provide only partial protection against demutualisation. There is currently no statutory mechanism for ensuring that surpluses, which previous generations never intended to be for private reward for anybody, remain committed to that wider public purpose. At present, it is not possible for an existing society, or those setting up a new society, to proscribe demutualisation. This leaves mutuals vulnerable to those aiming simply to liberate the legacy asset, share it out among those they choose and convert the business into an investor-owned company.
This has resulted in much of the UK’s building society sector being lost, and the businesses then either failing or being transferred into non-UK ownership. We all remember the names of those building societies that have long since disappeared, such as the Abbey National and the Bradford & Bingley. This has been bad for mutuality and bad for the economy, with damage being done to corporate diversity. Demutualised former building societies were mostly absorbed into the banks that failed in the banking crisis. Legislation is needed to help UK mutuals to preserve their legacy assets for the purpose for which they were intended, to maintain and encourage greater corporate diversity and to build a more resilient economy. Mutuals need to be able to incorporate appropriate measures into their constitutions with a statutory basis, either at the point of establishment or thereafter, with an appropriate level of member approval.
What does the Bill do? It disincentivises the raiding of legacy assets through legislation. Voluntary legislation will ensure that legacy assets are preserved for the purpose for which they were intended. It empowers mutual members to decide what should happen to the assets on a solvent dissolution. It would match the best legislation existing in many other countries around the world. The Bill introduces a voluntary power to enable a mutual to choose a constitutional change so that its legacy assets, the capital surplus, will be non-distributable, details precisely the destination of any capital surpluses on a solvent winding up, outlines the procedure necessary to include such provisions in a mutual’s rules and inserts a statutory provision for the relevant rules to be unalterable. It defines the capital surplus as the amount remaining after deducting a mutual’s total liabilities from its total assets, including repayment of members’ capital. It introduces new provisions to maintain the destination of the capital surplus and ensures that where mutual rules make the capital surplus non-distributable, any resolution to convert into, amalgamate with or transfer engagements to a company should also include a provision to transfer the capital surplus as provided by the rules in the event of a solvent winding up. That is quite a lot in a two-clause Bill.
In conclusion, I will address the issue of why corporate diversity matters. Diversity of ownership or types of business creates models of corresponding diversity in the forms of corporate governance, risk appetite and management incentive, structures, policies and practices, and corporate behaviours and outcomes. It also offers wider choice for consumers through enhanced competition that derives in part from the juxtaposition of different business models. For the wider market to benefit, each of the corporate models needs to enjoy the necessary critical mass defined as the degree of market share necessary to enable each model to operate successfully and thus provide real competitive pressure on the other players within the market.
Finally, I thank the Delegated Powers and Regulatory Reform Committee for its report, which specifically refers to this Bill. Responding to the points raised, I emphasise that this is a short, skeleton Bill. It is specific in nature and seeks to deal with a real, identifiable problem. The expertise to draw up the regulations lies in the Treasury. It is a Bill which is permissive. A mutual entity is not compelled to do anything on the Bill becoming law, and any mutual entity that does not wish to adopt or use the powers does not have to. Furthermore, the regulations must be brought back to this House and the other place for consideration and affirmative resolutions must be passed. There are proper procedures in place for proper consideration, and the regulations will be considered by the Secondary Legislation Scrutiny Committee before any such debate takes place in this House. I look forward to the contributions from other noble Lords in the debate and I beg to move.
Lord Bourne of Aberystwyth (Con)
My Lords, I support Second Reading of this Bill and declare my interests as set out in the register. I congratulate the noble Lord, Lord Kennedy of Southwark, on his sponsorship of the Bill in your Lordships’ House, and thank the honourable Member for Preston, Sir Mark Hendrick, for steering the legislation through the other place. I also congratulate my noble friend the Minister and the Government on supporting this legislation.
The co-operative movement can be traced back to the Victorian era, essentially in response to the Gradgrind version of capitalism, in contrast to the more enlightened Tory tradition of the Earl of Shaftesbury and others, who legislated to protect workers and who recognised the merit of co-operation. The social enterprise model is an important recognition of a form of business other than the simple shareholder model. Community-owned businesses are a vital part of our life, generating employment, social benefit and continuity.
Demutualisation can be a threat to the mutual sector, facilitating the break-up of a business, as we have seen in the past. The distribution of all the assets, including substantial legacy assets, contrary to the intention of those who set up that business, is not in the interests of us all. Mutuals may, of course, resist demutualisation attempts, as the recent Liverpool Victoria saga showed us in 2021, when the private US equity firm Bain Capital tried unsuccessfully to take it over. This legislation will assist in resisting demutualisation.
The legislation governing mutuals is somewhat archaic. I welcome the possibility that the Law Commission might look at the wider area of mutuals and how they may have access to capital. I hope that the Minister, in responding, can say whether there is a timescale for that and whether it is happening. The United Kingdom has a relatively small mutual sector, compared with other comparable economies such as France and certainly Italy, where it is significantly larger—particularly in Emilia-Romagna, where it is a large part of the enterprise sector.
This Bill will give co-operatives, mutuals and friendly societies flexibility in assessing what fits for themselves as the best model. It enables them to adopt this form of block if they want to do so. As the noble Lord, Lord Kennedy, has said, it is not obligatory. It will help those societies that choose to adopt the so-called asset lock. Voluntary asset locks have been adopted to good effect by some societies, often with so-called charitable assignment clauses, but this legislation will build on that and ensure that, where there is an intention on the part of the business, it can go forward with a lock that is significantly harder to unpick than some of these voluntary locks that have been adopted.
I give an unqualified welcome to what is clearly a sensible piece of legislation. I have just one additional question for the Minister. Looking at the Explanatory Notes, this is a reserved area for Wales and Scotland; that much is clear. It is not a reserved area for Northern Ireland, so what will happen in relation to Northern Ireland? We all hope, I am sure, that the devolved body, Stormont, will be up and running before long. It has been a good week in relation to Northern Ireland, with the success of the legislation going through. It has been a good week for sensible government. I hope that the Minister can say something about how the Northern Ireland part of the United Kingdom can benefit from this legislation in the short term while we do not have Stormont up and running.
However, I will not detain the House any longer, except to give an unqualified welcome to this legislation, and to thank the noble Lord for bringing it forward.
Lord Mann (Non-Afl)
My Lords, I congratulate the noble Lord, Lord Kennedy, and Sir Mark Hendrick, on their work and their diligence in bringing to a likely success this piece of legislation. I declare a relevant interest as a member of a mutual, the Yorkshire County Cricket Club, and as someone who has provided, in the last year, some significant work and advice, including on regulatory issues, with the Financial Conduct Authority. I am currently assisting the club in looking at the raising of finances from the capital markets or elsewhere to deal with its ongoing financial crisis. According to the press statements by those at senior levels in the club, there is currently a major financial crisis, and indeed a suggestion that the club is in some peril. There is an annual general meeting tonight. Doubtless more details will be provided in relation to that.
This Bill is very timely. It raises interesting questions about how new powers could be used and how the Treasury could give guidance to allow an inventiveness in use. Take the situation with Yorkshire County Cricket Club, a mutual. The public face states “a mutual”. It is my understanding that it is a community benefit society. However, I have been unable to get absolute clarification on that. The fact that one cannot get an easy clarification on that demonstrates a weakness in the current system.
Concepts of asset lock are often seen in terms of financing. Yorkshire County Cricket Club has set up a private charity, the Yorkshire Cricket Foundation. However, assets come in different forms. The financial crisis of this mutual is primarily because it has had an investment with non-mutuals in building assets—in this case, a stand, for which lots of money is owed and for which lots of money had to be borrowed. That agreement is within the mutual and yet outside the mutual because that is not an asset that the mutual controls and therefore can asset lock. Within the stadium, there is a hotel that is rather significant in terms of income generation for test cricket. It is owned by a third party. The interrelationship with the neighbouring rugby club, in relation to car parking and other assets, is complex, but in essence it is a mixed picture.
One could argue that the community benefit requirements under law—not least the 2014 law—would have required Yorkshire County Cricket Club to take a greater interest in the 2012 report by Tom Fletcher of Leeds Met university on racism in Yorkshire cricket and racist attitudes in Yorkshire cricket. If that had been done at the time, on some of the things that Dr Fletcher was able to evidence, future problems that emerged might have been avoided. That would seem to be a definition of community benefit that was not fulfilled under the requirements of the law and by the regulation under the FCA at the time.
What the Bill can do on the ambiguity of what is a mutual will be incredibly helpful to mutual members—I am a mutual member, and it is ambiguous to me at the moment—and there are other sporting clubs where the same would be found, but the key thing, which is potentially revolutionary for sporting clubs, is thinking through where asset locks could go. Asset locks are generally seen in terms of finances and supporting profits and how they are held on to. However, asset locks can include the pitch, for example. Therefore, if the mutual members of Yorkshire County Cricket Club were to choose to identify the pitch as a community asset and lock that in, it would mean that, should the club be in such a perilous state that it goes into liquidation and has the threat of a takeover by third parties who, in order to survive, may not wish to retain mutual status in the future, it would give this opportunity to the mutual members and empower them. For example, in a very different way, not by mutual but by private ownership, the private pitch owners at Chelsea Football Club locked in the pitch at Stamford Bridge, and not even Mr Abramovich could assuage them with financial offers to give up that ownership.
Given the Government’s intention to regulate football and, doubtless, a desire to have good management, ethics and systems across all sport in this country, this opens up a huge opportunity. I have put this to grass-roots, low-level—non-league, to be accurate—football clubs in the past. Ownership structures could be changed so that the core assets including the name, the pitch and perhaps the youth structures could be owned on a mutual basis, but the more complex assets such as the stands, corporate facilities and spectator facilities could be owned by a separate owner and not necessarily be mutualised. That would allow people to invest in some of the profit-making potential of bars and related foods et cetera, while guaranteeing that such ownership could never take away the essence of that sporting club.
I proposed that some years ago to Worksop Town Football Club. The owner at the time did not accept the concept, but the obvious way of managing sport in this country remains for a football club of that level and size, or in whatever sport: locking in the assets to a particular location; locking in the key thing in the asset, which is the pitch; and debarring. They certainly had a case at Worksop Town where one owner debarred local youth and schools from using the facility. Giving members the ability to determine who will use the core sporting facility is a semi-veto power of management, but not one that would put off any coherent private investor—who might want some kind of venture that they have built, such as a private sports club as part of a new spectator stand that he or she and their entity have profited from but, in reality, cross-subsided the creation of a stand for spectators, which then cross-subsidised the sporting body itself and the mutual.
It seems to me that, at many levels of football and cricket and, I dare say, one or two other spectator sports with similar complexities of finance, this anchors in the community benefit. The beauty and criticality of the Bill by the noble Lord, Lord Kennedy, is that it allows this to happen under any form of mutual. It is a game-changer in how, at that level—which is the level of most sport in this country—assets could be seen, and in how the supporter base and community could ensure that they have a lock on those assets.
I urge support for the Bill and urge the Treasury to move rapidly in ensuring effective guidance. This could revolutionise the grass-roots asset base in our sport and may well be of future assistance to troubled entities such as the mutual that Yorkshire County Cricket Club is at the moment.
Lord Naseby (Con)
My Lords, I rise to support the Bill and congratulate all those who have been involved in its passage thus far. Mutuals have been part of my political life ever since I got involved in politics: I am member of the Co-op and bank with the Co-op, the NFU looks after my woodlands, and I remain actively involved in other aspects.
I had the privilege of being chairman of the Tunbridge Wells Equitable Friendly Society from 1998 to 2005, along with a man called David White. He and I created the brand of the Children’s Mutual, which was, in my judgment, the most successful unit to sell child trust funds. I am saddened that that very successful concept was replaced by the junior ISA, which did not have the same vision and excitement for young people. That is part of the history, really. I am currently one of the vice-chairmen of the All-Party Group for Mutuals.
I look particularly at Canada, where I have a brother, and at the huge success of the mutual movement there: it is growing, dominating the insurance market there, with a real mutuality of work on the ground. In a lesser sense, one sees the same in Holland and in Europe. I would like to see that happen in my country.
In today’s world, the mutual movement faces two challenges. One is how to utilise retained capital, which is addressed in the Bill, and the other is raising capital. The latter element took me into the legislative process in 2015, when I took a Bill through both Houses with the support of my noble friend on the other Bench—he is now not on the Front Bench, but nevertheless he has been hugely supportive, and I underwrite his involvement in the mutual movement.
I previously had a Bill called the Mutuals’ Redeemable and Deferred Shares Bill. That was to address the issue of raising capital. At that time, you had a situation where, of the five elements that make up the mutual world, building societies, credit unions and co-operatives had already been helped by the Chancellor at that time, but two had not: the mutual insurance companies and the friendly societies. My worry and theirs was that, if we did not do something, they would wither on the vine. Indeed, when one looks back, it was not so many years ago that the mutual insurers had about half the market; today, it is 10%, and I suspect that that is a little generous.
At any rate, that Bill was supported by Her Majesty’s Government, and I still pay tribute to the then Chancellor, Sajid Javid, who helped in taking the Bill through Parliament. We hit certain problems, particularly to do with the requirements of Solvency II and whether the capital raised would be eligible for tier 1 capital, which was absolutely vital for development capital. However, after much negotiating, we got to a situation where we had to remove one element, the redeemable element, because, basically, an election was coming.
When we got that on the statute book, we thought we had got a long way and that it was all going to happen smoothly. Lo and behold, it never happened, because it required a statutory instrument to implement the Act, and that was not made due to concerns at the time that issuing these shares would alter the tax liability of mutuals. So the Bill is still there as an Act. It is still sitting there and I hope something will happen about it, but I will come back to that in a second.
I now turn to the current bill. It is not a huge Bill; it is very much a focused Bill, and that is to its great credit. I praise Sir Mark Hendrick and others who have taken it thus far. The interesting part of what has been happening in the team that has been working on it is the letter—I cannot see the date on it—from Minister Andrew Griffith MP to Gareth Thomas MP, who is chairman of the All-Party Parliamentary Group for Mutuals. The last paragraph is absolutely key. It says:
“Going forward, the Government aims to develop a modern and supportive business environment to set mutuals up for future growth and success and is currently exploring the options for reviews of key legislation underpinning the sector. This will allow the appropriate time and space for engagement with mutuals and regulators to ensure there is consensus on the best way forward.”
That is a very exciting prospect.
I see my noble friend on the Front Bench. It has been a privilege to work with her on the Bill we are doing in the House at the moment on financial matters.
We also have a practical problem. I think every one of us has probably shopped at John Lewis. It is interesting that the chairman, Dame Sharon White, was deeply involved in the early stages of the child trust fund, so she must feel quite strongly that somehow she needs to find a means of recapitalising John Lewis. That is another challenge. Speaking personally, I think John Lewis is part of life in the United Kingdom, and I would like to see that organisation prosper. I think that should basically be at the back of His Majesty’s Government’s review of this whole area.
I read economics at Cambridge—I found a subject I was reasonably good at, having not been terribly academic at school. I was reminded, as it was quoted in the papers recently, that John Stuart Mill hoped that employee ownership would end the standing feud between capital and labour. That is the driving element that I feel as well. I will give this Bill all possible support and do anything I can to help it move forward, and anything I can to help His Majesty’s Government as they look at the broader aspect mentioned in the letter I quoted. I just remind my friend the noble Lord, Lord Kennedy, that when he supported my Bill he said it was the second time. This time it will be third time lucky, I hope. With that, I offer myself as a servant to do anything I can to put this Bill on the statute book.
Baroness Taylor of Bolton (Lab)
My Lords, it is somewhat unusual to stand up from these Benches and agree with virtually every word that has come from the Benches opposite, but that is where I find myself today. I join Members on all sides of the House in congratulating my noble friend Lord Kennedy on sponsoring this Bill, and indeed my honourable friend Sir Mark Hendrick, with whom I served in the Commons, who introduced it. It is good to see that it has had an unqualified welcome from all sides of the House.
It is, as my noble friend pointed out and has been mentioned just recently, a very straightforward Bill. Although there are regulations to be made, I do not, on this occasion, have my usual concerns about a skeleton Bill leaving the detail to later—though of course many people will want to look at that detail quite carefully.
I think that many people in the co-operative movement, and many people who deal with mutuals, would have been surprised, until quite recently, that such legislation is necessary. There have been shocks to the system—mention was made of Liverpool Victoria—that have made people look again at the framework of regulation here. Although this Bill is welcome, it is not the last word on what needs to happen going forward.
The issuing of a statutory asset lock is clearly extremely important, and that need has been highlighted by recent cases. Those who established mutuals and co-operative institutions never thought that the assets that they were creating were not protected. I think that is where the shock element comes from.
The noble Lord, Lord Bourne, gave a bit of the history of co-operatives, and I appreciate that because, as my noble friend Lord Kennedy indicated earlier, many of us were brought up in that particular culture of co-operation. Like many people, I remember going as a child to the local Co-op in Wishaw, where my granny lived, for the morning rolls. I remember to this day, “four, five, seven, six” which was the number you had to give to make sure that, at the appropriate time, the dividend came forward. In Bolton, we had a remarkable system where, when you went to the Co-op shop, you were given a thin paper ribbon with the amount spent that you then had to put on a gummed piece of paper. If I lost it on the way home, my mother was not best pleased, because that again was reflected in the dividend that was often very useful for buying shoes or whatever it was that was the particular purchase of that kind.
It was not just the financial incentive to shop at the Co-op or to have insurance with the Co-op; it was the feeling that you were not being cheated. There was a confidence factor there. The early co-operative organisations were often based on giving people confidence that they were not being cheated but also on a feeling of belonging. It was part of the culture of many working class existences. I think that the co-operation with social enterprises, which was mentioned on the Benches opposite, is something that builds on that. Those who established co-operative and mutual benefit societies and institutions would be horrified at the thought that the assets that have been built up over time could go for other purposes.
I have just one question for the Minister, and it builds on what the noble Lord, Lord Bourne, said. In the Commons, the Minister said that the Government would soon bring forward legislation to amend the Building Societies Act 1986 and are consulting on reviewing the legislative framework governing co-operatives, community ventures and friendly societies. I know Ministers cannot anticipate what might be in the King’s Speech, but I wonder whether we could have a bit of an update on the progress that I hope is being made in this particular area.
Mention has been made of sport, and I think it is important. I know my noble friend Lord Kennedy is a great football fan, although we disagree on which club we should be supporting. He will have seen the real difficulties that many clubs have gone through in recent years. We have one or two football clubs that are going down this particular pattern of trying to work together and have a community asset. I hope there is more scope there.
This is an important Bill. It is a small Bill. It is, as my noble friend said, a permissive Bill. It is not ensuring that all societies go down this route, but I hope that the voluntary powers in it will be acted upon, because that is what the originators of all these institutions would have wished.
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, as a proud member of the Co-operative Party, it is a genuine pleasure to contribute to this debate. I pay tribute, as so many have, to my noble friend Lord Kennedy of Southwark for introducing this incredibly important Bill and for continuing the work started in the other place by Sir Mark Hendrick.
I do not believe that anyone who has listened to my noble friend during this debate or at any other point could doubt his commitment to the co-operative movement. He is a stalwart co-operator and has dedicated many hours to campaigning for the co-operative movement, seeking to ensure a fairer and more equitable approach to our local economy.
As my noble friend outlined, co-operatives, mutuals and friendly societies are not relics of the past but a fundamental aspect of our national economy, and provide a lifeline to communities seeking to be directly involved in the provision of services in their immediate vicinity. As my noble friend Lady Taylor of Bolton reminded us, for many of us nothing is more evocative of childhood than conversations about our family’s divi number. My partner can still cite his grandmother’s: 207619, Thelma Snell. But co-operatives and mutuals are more than retail outlets, important as those are.
As my noble friend Lord Mann and the noble Lord, Lord Naseby, both referenced, the British co-operative movement is as diverse as our economy and includes everything from cricket clubs to football pitches—that was news to me—and from housing providers to funeral societies, credit unions, insurance companies, shared community spaces, retail offers and even the odd public house.
That is why this legislation is so important. In the UK, 14 million of us are members of a co-operative or mutual. They employ more than 250,000 people and generate a combined turnover of £39.7 billion a year. They also collectively hold more than £200 billion in assets, as the noble Lord, Lord Bourne of Aberystwyth, highlighted. While those numbers may seem impressive, they are small fry compared to those of our friends in the EU. The co-operative sector in Germany is four times the size of the UK’s and is a sector of its economy embraced at both a federal and a local level.
Around the world, 12% of the population are members of a co-op and the largest 300 co-operatives and mutuals report an annual turnover of $2.1 trillion. From that comes a view of how capital can be used not for short-term gain but for long-term investment in which members understand that the success of the business and surpluses generated above the original capital asset are used for the common good. This business model also creates a stable and dynamic enterprise; co-operatives are twice as likely to survive their first five years of trading than other start-ups and are known to be much more ambitious in their plans for growth.
It is therefore imperative that we do what we can not only to foster the creation of new co-operative and mutual societies but to protect the ones we have, which is why the Labour Party has already pledged to double the size of the British co-operative sector after the next general election.
This Government speak a great deal about economic growth and levelling up. The co-operative movement is a vehicle that can and should be involved in delivering both, and this piece of legislation is a small step in helping the sector to move forward. It provides the safety mechanism that allows for any capital surplus to be held over and for the associated funds and assets to remain committed to the wider public good should a mutual cease to trade. It empowers the members of mutual societies to decide what should happen to assets upon the dissolution of their society. It will allow members the right to preserve the assets for the future, to deliver the original guiding intentions upon which their society may have been founded.
Currently, no such provision exists in the UK. Nothing exists that allows members to specifically confirm that any capital surplus would be non-distributable and remove the very tantalising incentive for demutualisation. Those pioneers who set up and found co-operatives, mutuals and friendly societies never do so in the hope of turning a quick profit. They do so because of a desire to enhance the common good, which can be achieved only by co-operation. They seek not only to build a financial enterprise but to provide a community with a tangible solution to a shared need. Indeed, these co-operators have neither the right nor the expectation of securing personal financial benefit from the increased value of their society; this is where the problems arise.
This Bill, therefore, establishes the right from day one, if they wish, for new mutuals, co-ops and friendly societies to enshrine in their governing documents that any capital surplus in the event of dissolution will be held securely in the hope that future generations may, one day, pick up where they left off. It would stop eagle-eyed investors seeking to demutualise, distribute an unearned windfall profit and for ever end the common good that the founding members had intended from their original stake.
This Bill is a bulwark to those who see successful mutuals and co-operatives as an opportunity to asset-strip and make a quick buck on the backs of generations of working people who made a choice about the type of business they wished to support, so it definitely has the support of our Benches.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
My Lords, all speakers in this debate have recognised the diversity and value that mutuals bring to our economy. At their core, mutuals give people a stake in how businesses and organisations should be run. Their unique, purpose-led, member-focused approach provides an alternative model of economic organisation and activity across all industries, from financial service providers to housing, agriculture, manufacturing and—as the noble Lord, Lord Mann, noted—sports clubs, down to community assets such as locally owned libraries and pubs.
As the noble Lord, Lord Kennedy, described to the House, he has a keen appreciation of the importance of mutuality as a committed member of the Co-operative Group and a non-executive director of the London Mutual Credit Union, one of the largest credit unions in London. I thank him for lending his wealth of experience and expertise as he leads the Bill through this House on behalf of the honourable Member for Preston, to whom plaudits must go for the Bill before us today.
I also take a moment to acknowledge the spirit of cross-party collaboration of which this Bill is a product, particularly that which was fostered between the honourable Member for Preston and my honourable friends the Economic Secretary to the Treasury and his predecessor, the honourable Member for North East Bedfordshire, which saw the Bill move unopposed through all its stages in the House of Commons. Throughout, their endeavours have been backed by significant levels of support and input from the sector itself, particularly the trade bodies Co-operatives UK and the Association of Financial Mutuals, and the think tank Mutuo.
The noble Lord, Lord Kennedy, clearly explained the positive change this Bill seeks to deliver for co-operatives, friendly societies and mutual insurers. This country is rightly recognised as the birthplace of the modern mutual movement. It is right that we protect this legacy by equipping co-operatives, friendly societies and mutual insurers with a stronger option in law to safeguard their funds for the future so that they can continue to contribute value to society and their members for years to come. The merits of the Bill are clear and roundly endorsed by the sector itself. I am pleased to be able to give the Government’s full backing to it. Within the limited legislative time available to us, I look forward to the Bill progressing swiftly.
My noble friend Lord Bourne asked how the provisions in this Bill can be taken forward in Northern Ireland given that co-operatives legislation is devolved and there is no Executive in place. Northern Ireland is governed best when governed locally. The Government believe that this is the moment for the restoration of the devolved institutions. It would be for a restored Executive to take forward any similar legislation, but I assure my noble friend that my officials have had regular dialogue on mutuals issues with their counterparts in Northern Ireland and would be happy to continue that engagement in future.
As noble Lords have noted, the Government’s commitment to this sector is not limited to this Bill. Through the Financial Services and Markets Bill, a number of important amendments are being made to the Credit Unions Act 1979 to support the future growth, diversification and development of credit unions. These reforms include empowering credit unions in Great Britain to offer a wider range of products and services, creating a more agile and competitive sector, which can better adapt to changing market trends to deliver for its members.
Furthermore, the Government are delivering for building societies—mutual savings providers and mortgage lenders—which are not included in the scope of this Bill. As the noble Baroness, Lady Taylor of Bolton, noted, and as announced in the Edinburgh reforms package, the Government will in due course bring forward legislation to amend the Building Societies Act 1986 following the conclusion of our consultation. The amendments will help to establish a legislative framework that is fit for the future and promote a level playing field for building societies to grow and compete.
The Bill is focused on safeguarding the positions that mutuals hold today, but we must also focus on the future. To respond to my noble friend Lord Bourne, my noble friend Lord Naseby—to whom I pay tribute for his long record of support for mutuals—and the noble Baroness, Lady Taylor of Bolton, I say that we are in active discussions with the Law Commission on options to proceed with reviews of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching those reviews in the next financial year. As my noble friend Lord Naseby noted, modernised, fit-for-purpose legal frameworks will enable friendly societies and co-operatives to seize opportunity and grow.
All in this House appreciate the potential of modern mutuality. Mutuals are invested in the success of their members and the local authorities where they operate. Because of that, they can be a real asset in our mission to level up and spread economic opportunity across every region of this country. In the meantime, I look forward to working with noble Lords to ensure the successful passage of the Bill, which is one important step along the road to reform for the mutual sector.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I very much thank all noble Lords who have spoken. I agree with every comment that has been made, which is very unusual in this House, so that is wonderful.
I thank the noble Lord, Lord Bourne of Aberystwyth, for the reference that he made to the campaign against the demutualisation of Liverpool Victoria. That is a recent example of the threat that mutuals face when people see their large assets. It was a great campaign that will be an eye-opener and a wake-up call for everyone, showing that something needs to be done to protect those assets. I thank him for his support, and I generally agree with all the comments that he made.
My noble friend Lord Mann spoke about sports facilities, the benefits they bring to the community and how the assets of those facilities could benefit from a change in their ownership structures. That was a really important point. He highlighted that, with legislation, lots of playing fields and sports centres and grounds could be protected for future generations. Small ones in particular are often under threat.
As my friend the noble Lord, Lord Naseby, said, we have worked together many times on these sorts of issues, and I thank him again for his support, which is really good to hear. His many years of support for the mutual sector are welcome and needed, and we thank him very much for them.
My noble friend Lady Taylor of Bolton also made reference to the Liverpool Victoria situation and highlighted the need for further protection. I agree with what she said about the special place that the Co-op has, in our memories and even today; I am a regular shopper down the Co-op, and it is a wonderful organisation, as are all the mutual organisations in our country, so it is always worth supporting that.
It was great to see the support from the Opposition for the Bill. My noble friend Lady Anderson of Stoke-on-Trent and I have been friends for many years, from long before either of us was in either House of Parliament. She used to serve in the other place. I was so pleased when she joined this House at the end of last year, and I am even more pleased and proud that she is speaking from the Opposition Front Bench. It is great to see her here.
I thank the Minister for her support for the Bill today, and I thank the officials from the Treasury for all the work that they have done. It is good to hear that there is further work going on behind the scenes in the department to look at other legislation. I was pleased that she mentioned the London Mutual Credit Union. I am proud to be a director there. It is a wonderful institution, the biggest credit union in London, and we are actually in the mortgage market now. It is a fantastic organisation. If she ever wants to visit, I would be delighted to show her around and show her all the work that we do there.